What the Heck Is Bitcoin?

Bitcoin Basics

I have been hearing a lot about Bitcoin lately, so I decided I should read up on it. I got as far as “cryptocurrency,” “hash rates,” and “hexadecimal” before my head began to explode. If you are an Economist or an IT nerd, it’s not a problem. But for the rest of us, that’s just techno-babble. So I decided to do my own research, and see if I could come up with a way to explain it in simple terms.

First of all, contrary to its name, Bitcoin is not a coin. It’s not even a bit. In fact, it does not exist in physical reality at all. You can’t hold a Bitcoin in your hand, as you might a dime or a quarter. It is a “virtual” asset. And just like virtual reality, it has no actual substance. Bitcoins are stored in digital “wallets” on your computer or mobile phone. One Bitcoin is known as a BTC.

How is Bitcoin Used?

The best way that I have found to understand Bitcoin is to explain how it’s used. Some use it as a type of currency, because you can spend it to buy goods and services. You can also buy it, keep it a while, and try to sell it at a profit as you might a stock. Finally, you can earn it, as you might earn a U.S. dollar, for performing a task or selling an item. Bitcoin might best be understood as special type of asset, with properties of a stock as well as currency.

One important difference that sets apart Bitcoin from traditional currency as we all know it, is that there is no government in control. There is no such thing as a “U.S. Bitcoin,” or “Japanese Bitcoin.” Also, no banks are involved. It’s international, in that Bitcoin recognizes no borders. You can also use it anonymously. This setup is the perfect recipe for illegal activities in my opinion, but there is nothing illegal about owning and using Bitcoin itself.

One more thing that makes Bitcoin different is that there is no “third party” between you and the other person with whom you are transacting. It’s strictly peer-to-peer. You would think that such an arrangement would require quite a bit of trust between the various people involved. Actually, the opposite is true. Its complex mathematical foundation makes it “computationally impractical” to hack the system.

How Do You Get Bitcoin?

You can buy Bitcoin on an exchange, using traditional currency. You can also “mine” Bitcoin, but that process is very, very technical, and requires sophisticated computing power. The easiest way to understand mining is to think of it as being paid a fee for doing accounting services on behalf of the network. Finally, you can receive Bitcoins from private individuals, in exchange for goods or services.

The process of “mining” Bitcoin is where most of the techno-babble comes in. Also, the process for spending Bitcoin involves a bit of high level computing power, to verify the funds are legit. The bottom line is that ordinary users don’t need to understand these processes in order to use Bitcoin. That won’t stop your nerd friends from trying to explain it to you. Best of luck with that.

Why Was Bitcoin Created?

With all the other methods of making electronic transactions, what prompted the creation of yet one more way to spend money? Quite simply, a lack of trust in governments and financial institutions gave rise to Bitcoin. By introducing a mathematical model that allows users to exchange funds without the necessity of a third party (e.g., a bank) to coordinate and verify the transaction, funds can be exchanged with no middleman.

Connect with us

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, toughnickel.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

This is used to display charts and graphs on articles and the author center. (Privacy Policy)

Google AdSense Host API

This service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)

This is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)

Facebook Login

You can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)

Maven

This supports the Maven widget and search functionality. (Privacy Policy)

We may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.

Conversion Tracking Pixels

We may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.

Statistics

Author Google Analytics

This is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)

Comscore

ComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)

Amazon Tracking Pixel

Some articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)